Chip Makers Are Better Off Without Crypto Miners

Miners of
cryptocurrencies may soon stop buying chips from NvidiaCorp. NVDA 2.62% and
Advanced Micro Devices Inc.. But some businesses are more trouble than they are
worth.

The graphics
processors that both companies make are designed primarily for rendering
videogames, as well as providing artificial intelligence capabilities to data centers and
automobiles. But they’ve also proven popular for processing cryptocurrency
transactions—an activity otherwise known as mining. The rocketing value of
those currencies over the past year has turned such mining into a highly profitable activity. That in turn has sparked a rush on
GPU chip cards that boosted sales for Nvidia and AMD both last year as well as
the recently ended quarter.

But
that looks likely end soon. A Chinese venture-backed company called Bitmain
announced a new chip last week specifically designed for mining ethereum, which
is the most popular cryptocurrency mined with GPUs. Several analysts believe
that system, which ships in July, is likely to pick up the bulk of demand from
cryptocurrency miners due to superior technical performance for that task.

Concerns
about the impact of cryptocurrency mining are one of the factors that caused
sharp declines in shares of both Nvidia and AMD in the past month. The latter
in particular has a smaller revenue base that was likely inflated more by
crypto demand. Christopher Rolland of Susquehanna estimates that
ethereum-related chip sales accounted for about one-quarter of AMD’s revenue in
the first quarter. The expected loss of that business led him to downgrade the
chip maker to the equivalent of a sell rating last month.

Most analysts
believe the impact of crypto to be much smaller for Nvidia, amounting to
single-digit percent of revenue for the company’s fiscal first quarter ending
later this month. The company also has a much more robust data center business
that is highly prized by investors. And its core gaming business could also be
helped by new products expected later this year, as well as pent-up demand from
gamers stymied by the recent GPU shortage. Morgan Stanley analyst
Joseph Moore cited both in upgrading Nvidia to a buy rating earlier this week,
adding that he expects crypto demand to “fall towards zero” by the end of July.

Both companies, it
should be noted, have been wisely cautious about banking on crypto demand.
The volatile nature of those currencies as well as potential technical changes
in how those currencies are mined have long made crypto a dicey prospect for
long-term bets. Nvidia and AMD have much less cryptic opportunities to chase.